 Hello, ladies and gentlemen, welcome to the IAEA's series of talks by prominent speakers. Today is Klaus Regling. Klaus Regling has been involved with the Irish economy professionally for at least 20 years. In 2001, he was the Director General of the European Commission responsible for economic surveillance. And at that time, I seem to recall he gave Ireland some advice that we wasn't entirely well received, but maybe was good advice at the time. And in 2010, he together with Max Watson wrote the first official report on the Irish financial crisis, financial and economic crisis, the Regling Watson report now just over 10 years old. Not long after that, he was became responsible for the European Financial Stability Fund, which was one of the key lenders to Ireland in dealing with the crisis. And since then, he and his institution, the European Stability Magnetism, the successor to the EFSF, has been closely involved with both program and post program surveillance of Ireland, but also of all the other countries involved in the crisis period. The ESM then is Europe's lender to countries in difficulty, but of late, it has been creating new functions, including in economic surveillance, in backstopping some of the banking, banking protections that we have now in Europe as a systemic protections we have, even providing in the future for, for being involved in doing deals between creditors countries and their creditors, between countries in difficulties and their creditors. So quite a range of new functions. And most recently, a role as a potential lender in the pandemic. So where is the ESM after all this change? And what's happening for Europe's future, especially in the financial system, and what's the ESM's role in all of that? I think Mr Regan is going to describe all of that for us now. Thank you very much, Kevin. And good afternoon to everybody. Thanks for inviting me again to the Institute. It's a pleasure to be with you. Of course, it would be even better if I could be in Dublin. I have spoken before at the Institute of International European Affairs seven or eight years ago, and I also talked about the ESM at that time. But as Kevin Cardiff said, many things have happened since. And I'm very happy to talk about that, about the ESM's new and large mandate and what are the implications for financial stability and resilience. And obviously, we will have a question and answer session later on. So I will try to answer all the questions that you may have. So but let me start by looking first a bit back and see how the ESM has evolved over the past decade. I think it's useful to understand where we come from before we discuss where the ESM reform will take us. Prior to setting up the ESM as a permanent institution in 2012, the Euro area countries established the temporary EFSF, as Kevin already mentioned, the European Financial Stability Facility. And that happened in 2010. Then the EFSF provided loans to Ireland, Portugal and Greece. The ESM, the successor institution and permanent institution provided loans to Spain, Cyprus and again to Greece. The total amount is burst by both institutions together to these five countries was 295 billion Euro. A lot of money at the time today we are getting used to even bigger amounts when we look at the money that is mobilized in response to COVID-19. But at the time as a response to the Euro crisis, this was a substantial amount of money. Ireland was actually the first country to benefit from our support in early 2011. We dispersed almost 18 billion Euro to Ireland between 2011 and 2013 as part of a total support package of 67 billion Euro. When the Irish economy came out of the program, it was stronger and more competitive than before. In fact, when I talk about the ESM and our history, all the things we have done, I often refer to Ireland as one of our biggest success stories. The Irish government at the time immediately took full ownership of the necessary measures. And this is one of the reasons why Ireland managed to complete the bailout program so quickly and so successfully. Of course, it doesn't mean that everything went smoothly. There had to be sacrifices. It was painful. Budget cuts and structural reforms are never easy. And nobody likes to have salaries or pensions cut by 20 or 30 percent. However, these harsh measures paid off. Competitiveness was restored and Ireland quickly regained market access after the crisis. Since then, Ireland has made good progress in repaying some of the debt accrued during the bailout, even paying back its IMF loans early. This is another clear sign of how strongly the economy rebounded after the financial crisis. And although the debt to GDP ratio will now again increase due to the extra funding needed to fight the pandemic, we expect debt levels to start decreasing again in the medium term. Indeed, a lot has happened in the last 10 years. Looking back, we can now confidently say that the national and the European responses to the global financial crisis and then the subsequent euro crisis were comprehensive and effective. Let me turn to the situation we are in today. The measures we took 10 years ago are now proving very useful as they provided us with a stronger institutional framework and improved tools to deal with the current crisis. At the same time, it is important to note that we are in a very different context today compared to the previous crisis. This time, we do not need to correct past policy mistakes or macroeconomic imbalances in the euro area. Instead, we are responding to a common external shock for which governments are not responsible. So, unlike past ESM programs, there are no conditionality clauses this time. Conditionality makes sense when policy mistakes and macroeconomic imbalances need to be corrected. That was the case from 2010 to 2018. Conditionality was necessary at the time and it worked. EFSF and ESM loans with conditionality helped five countries to regain market access and to achieve above-average economic performance afterwards. The current situation does not require such a conditional approach. Today, the EU's only condition for the two loan-based safety nets introduced in the pandemic is the ESM's pandemic crisis support and the European Commission's SHURE instrument for workers. The only condition is that countries have to use the funds to address the consequences of the pandemic. More specifically, the ESM loans are earmarked for covering direct or indirect health care costs. The ESM offers all euro area countries a precautionary credit line of up to 2% of their GDP. And this is a significant amount. If all 19 euro area countries were to request it, which I do not expect, the total amount of loans would add up to 240 billion euro. No country has requested this credit line yet, but its mere existence has calmed down markets. And countries can still request our pandemic crisis support until the end of 2022. It is also worth noting that these loans will be financed by issuing social bonds for the first time. This is part of our efforts to make Europe greener and more digital. The ESM's pandemic support credit line is part of a larger package of 540 billion euro agreed last April to support workers, businesses and member states. Why the ESM supports countries, the European Investment Bank supports companies and the European Commission supports workers with its SHURE program. In addition, there's the extraordinary 750 billion next generation EU recovery fund, which aims to boost investment and reforms in all EU countries to mitigate the impact of the pandemic on economic growth and of course, there is the European Central Bank's monetary policy program that continues to stabilize markets. Taken together, these measures will not only help each and every EU country to fight the pandemic, they will also protect the single market and the cohesion of the euro area. This degree of EU solidarity is unprecedented and once again shows that Europe is committed to remaining united. But although we have taken extensive measures to fight the current pandemic, there's more work to be done. We should continue to deepen our economic and monetary union. Why we took important steps in the past, in the past decade, with the creation of the ESM and also the beginning of banking union, we should now complete this process to make economic and monetary union more resilient and less vulnerable. And this brings me first to the ESM reform, which will enlarge the mandate of the institution I manage. This reform is one important step towards deepening our monetary union and making it more resilient to shocks. But before we take a closer look at the changes, the reform entails, I would like to point out that Pascal Donoho, your finance minister, who became president of the Eurogroup in July last year, was instrumental in reaching a final agreement on this reform. He is also the chairperson of the ESM Board of Governors, which is our top policy-making body. So he and I work together very closely. The reform was agreed upon by all 19 Euro area finance ministers and endorsed by the European heads of state and government. And it will only enter into force after ratification by all national parliaments, a process which will be completed in the course of this year. While the ESM reform aims to further deepen the economic and monetary union and brings us closer to completing banking union, some of the proposed measures will also be useful in mitigating the economic and financial fallout from the coronavirus pandemic. Let me take a closer look at what the ESM reform aims to achieve. First, the ESM will put in place an additional instrument to support bank resolutions, introducing a common backstop to the Single Resolution Fund. The Single Resolution Fund is the EU body that takes care of the resolution of failing banks. If this fund does not have enough money to resolve a bank, the ESM can in the future lend that money. All the money the ESM lends to the Single Resolution Fund as a backstop will be repaid with contributions from the banking sector within three to five years. In other words, governments will not have to bail out large banks at the expense of taxpayers, as we saw in the past. The contributions to the Single Resolution Fund and the ESM backstop will come from the banking sector itself. When the backstop will take effect in 2022, it will not just be another key element of the banking union, but it will also contribute to the robustness and resilience of economic and monetary union as a whole. Although banks are generally in a better position today than during the euro crisis, some banks might face problems in the future. The banking sector's profitability was already subdued prior to the pandemic, and we can expect further pressure on banks' profitability as impairments will increase as a consequence of the economic fallout from the pandemic. Many banks across Europe will likely face challenges as we transition out of the pandemic. Nevertheless, a strong and well-financed resolution mechanism will reduce the risk of disorderly bank resolutions, which will in turn reassure and stabilize markets. The second part of the ESM reform strengthens the preventive and precautionary features of the ESM toolkit. The coronavirus pandemic shows that an external shock can come out of the blue anytime, so it is important to enable institutions to put appropriate financial facilities in place quickly. As we can see in the current crisis, precautionary credit lines like our pandemic crisis support can reassure markets, but they were not drawn. Sometimes it's enough to know that you have an insurance, even if you don't intend to use it. Once the reform has been implemented, it will be easier for countries to access the ESM's precautionary credit lines without extensive negotiations about policy conditionality when certain requirements are met. The third part of the reform foresees that the ESM will strengthen its cooperation with the European Commission, as the ESM will have an enhanced role in designing, negotiating and monitoring future stability support programs. You may remember that previous support programs, including the Irish one, were managed by the so-called Troika, consisting of the European Commission, the European Central Bank and the International Monetary Fund. Going forward, the Troika will no longer play that role. Instead, programs will be managed jointly by the European Commission and the ESM. This change in governance for future programs will enable a more coherent, streamlined and rapid crisis response. The European Commission and the ESM will collaborate in accordance with our respective roles and mandates. The European Commission is in charge of policy coordination according to the EU Treaty and will guarantee that EU provisions are always respected. At the same time, the ESM will ensure that public resources are well spent and that a borrowing country is able to repay. To sum up, the ESM reform will introduce a backstop to the Single Resolution Fund. It will strengthen our toolkit and it will give the ESM a larger mandate in designing and monitoring support programs for countries. All this will strengthen our ability to prevent and resolve crisis and the reform should also help to make the euro area as a whole more stable and resilient to future shocks. This brings me to the broader topic of deepening economic and monetary integration. While we have made considerable progress on strengthening economic and monetary union over the past 10 years, we are still missing a few important elements. The introduction of the backstop brings us closer to the completion of Banking Union. However, we are still missing a common deposit guarantee scheme. This would be a valuable tool to ensure the stability of the banking system and would be a step towards completing Banking Union. In addition, a better integration of capital markets through the creation of a capital markets union is necessary to facilitate cross-border investment, increase risk sharing and open up new ways of financing for companies. This in turn would improve the allocation of capital in the euro area and make the euro more attractive to international investors. Another element which is needed to strengthen economic and monetary union would be a fiscal capacity for macroeconomic stabilization in the euro area. This would allow for more fiscal risk sharing between countries. The new resilience and recovery facility which will be financed by bonds issued by the European Commission is such a tool and hence it will result in additional fiscal risk sharing. However, it is not a permanent facility and it is geared towards structural reforms in the wake of the pandemic. I believe a permanent facility for euro area countries only in the form of a revolving fund instead of a budget would be useful. It would give countries more fiscal space in a downturn than is currently the case. Finally, the need for more euro denominated safe assets is increasingly recognized. The bonds issued by the European Commission to support the economic recovery after the pandemic will significantly increase the volume of safe European bonds. If these bonds are added to the bonds issued by the ESM and the bonds issued by the European Investment Bank plus bonds issued by highly rated euro area governments, this total pool of European safe assets will roughly correspond to about 40% of the GDP of the euro area. While this is a large increase compared to the past, it is still only half the comparable ratio for US dollar safe assets. In other words, the total volume of euro denominated safe assets remains comparatively low despite the recent increase. To conclude, let me reiterate that we have come a long way since the financial crisis. Macroeconomic imbalances have been corrected and countries in need of financial support such as Ireland have not only regained market access, but also had a very positive economic performance until the pandemic hit. Going forward, we have a clear agenda for really completing the economic and monetary union. We need the full banking union, we need progress towards capital markets union, we need a fiscal capacity for macroeconomic stabilization and we need more European safe assets. Some of these items are quite controversial among our member states, but the agenda is clear, it will take a while to get there because it is so controversial. But these measures would not only make the euro area more resilient to future shocks, they would also strengthen the international role of the euro. With that, I finish my introduction and I am delighted to hear your views and to answer your questions.